Thursday, 13 October 2016

Scotland and Brexit: Brave Heart or Timorous Beastie?

Steve Peers

At the Scottish National Party
(SNP) party conference yesterday, Scotland’s First Minister (Nicola Sturgeon) announced
that the Scottish Government would issue a draft of a second independence
referendum bill next week. She also announced that the Scottish government would
soon table an alternative plan “to protect Scotland’s interests in [the EU] and
keep us in the single market – even if the rest of the UK decides to leave”. This
would entail “substantial additional powers for the Scottish Parliament”,
namely all the Scottish powers that “currently lie with the EU – and significant
new powers”, namely the power to negotiate international treaties and “greater
powers over immigration”.

Implicitly the Scottish
government is offering the UK government a choice: negotiate to ensure that Scotland
stays in the single market as a distinct part of the UK, or face another
independence referendum. I’ll examine the legal issues arising from these two
options in turn, and conclude with some broader observations about the Brexit process
compared to the prospect of Scottish independence.

Scotland in the UK – and the single market

Is EU single market participation
possible if a) Scotland stays in the UK, and b) the UK as a whole is not in the
single market anymore? Some people have called this prospect a ‘reverse
Greenland’, referring to the deal whereby Greenland left the EU but Denmark
stayed in. Given the huge differences between Greenland and Scotland, I suggest
we call this idea by a different name: say the ‘Scottish Economic Area’. I have
written about this prospect separately in iScot
magazine, but I will summarise my points again here.

Only independent countries which
are EU members can fully participate in EU membership. But in theory at least,
a part of a non-EU country could participate in the internal market, even if
the rest of that non-EU country did not. Of course, the EU and the UK’s
Westminster government would have to consent to this in as part of their
post-Brexit treaty, and it could only work if there was significant related
devolution to Scotland, as the First Minister suggested.

What would it mean in practical
terms? The ‘single market’ consists of the free movement of goods, services,
persons and capital, which includes the freedom of establishment of companies
and the self-employed. To facilitate all this, there’s extensive EU legislation
setting common standards for many industries. The single market also includes
common rules on competition law and state aid to industry. But a number of rules
on other matters (such as trade with non-EU countries) are not necessarily part
of it. Full participation in the single market goes further than a free trade
agreement with the EU which the Westminster government currently seems likely
to prefer, as it will abolish more non-tariff barriers to the trade of goods
and services. For instance, most free trade agreements don’t give as much
access to financial services markets as single market participation does. So if
Scotland is in the single market and the rest of the UK is not, more financial
services businesses may stay in Edinburgh, or move from London to Edinburgh
rather than to the EU.

Is this feasible in practice though?
The easy part would be applying EU laws in Scotland which only have domestic
effect, like consumer, environmental and labour law. When it comes to laws with a cross-border
effect on trade between Scotland and the EU, such as financial services market
access, it would be necessary to define exactly when a firm was based in
Scotland (benefitting from single market participation in the Scottish Economic
Area), and when it was based in the rest of the UK (subject to a less
favourable trade agreement).

The most difficult issues relate
to movement of goods and people. Would different rules on Scottish/EU relations
compared to the relations between the EU and rest of the UK mean that there
would need to be border controls between Scotland and the rest of the UK? On
this point, the Westminster government has promised there will be no border
controls between Northern Ireland and the Republic of Ireland, even though that
border will become an EU/non-EU border.
Surely whatever deal is reached to this end could be adapted for use at
the Scotland/England land border too.

The Scottish government would not
have a direct role in EU decision-making. But it could be given the same role
as Norway and Iceland have in their single market treaty with the EU (discussed
further below): consultation on proposed EU laws, the power to reject them
(although that’s subject to the risk of retaliation), and participation in the
EFTA Court that decides on single market disputes as regards Norway and
Iceland.

The suggestion above is
undeniably complex, although the whole Brexit process is complex anyway.
However, the idea isn’t all or nothing: it would be possible in theory for
Scotland to participate fully in parts of the single market, rather than all of
it like Norway and Iceland.

Independent Scotland

There are two possibilities here:
a) Scotland as a member of the EU, and b) Scotland as a non-member of the EU, but
with a close relationship with it – possibly closer than the remaining UK (rUK).
It is also possible that the latter option could be an interim step towards
full EU membership. Obviously any new independence referendum raises issues besides
Scotland’s relations with the EU, but I will focus on that point.

Scotland as an EU Member State

I blogged
on this issue in 2014, during the Scottish referendum, but I’ll summarise and
elaborate on those views again. The basic point is that the Treaties list the
Member States by name, and since the ‘United Kingdom’ is unlikely to be interpreted
as automatically referring to Scotland alone, either an accession Treaty or a
Treaty amendment is necessary to include Scotland’s name as a member. In the
past an accession treaty (as provided for in Article 49 TEU) has always been
used to add a new name; this would entail a negotiation process, which could possibly
be fast-tracked in light of Scotland’s existing de facto EU membership as part
of the UK.

However, that would raise awkward
questions, since the EU usually requires new Member States to apply Schengen
and the single currency, and might be unlikely to extend a share of the UK’s budget
rebate to Scotland. Having said that, a number of Member States have got away
with not applying the single currency in practice. It should be noted that the ‘deficit criteria’
which apply to joining the single currency are not applied as a condition of EU
membership, but only when a Member State subsequently applies to join the
single currency itself.

The alternative route to
membership is by Treaty amendment (as provided for in Article 48 TEU), which
could also entail an amendment to Article 49 TEU to refer to the special case
of Scotland: “By way of derogation from the above paragraphs, Scotland shall accede
to the European Union pursuant to the Treaty of Culloden”. One possibility is a Treaty amendment which
simply replacing the words “United Kingdom” wherever it appears in the Treaties
with “Scotland”; this would mean that Scotland retained the UK’s opt-outs from
the single currency, justice and home affairs and Schengen (the rebate is set
out in secondary legislation).

When I suggested this possibility
on Twitter a few months back, it was ridiculed by some as a “Tippex” approach
to amending the Treaties. But as a matter of legal drafting, it is perfectly
feasible, and there is a firm precedent in the Treaty
of Lisbon, which in Article 2(2) to 2(8) provides for a whole host of
amendments just like this: replacing “Community” with “Union” wherever it
appears, for instance.

Undeniably, however, either approach
requires unanimity between Member States, and so there would be a political
risk that accession or amendments are not easily agreed. In particular, some
have argued that there is a risk of a Spanish veto, because of concerns that
Scotland obtaining easy EU membership would inflame separatist tensions in
Spain or other countries. On the other hand, some have argued that these
concerns are misplaced.
Either event also raises timing issues: what happens if Scotland is independent
before or after Brexit, but is not yet immediately an EU Member State? The gap
could be filled, at least in the interim, by some other arrangement between
Scotland and the EU – an issue to which I now turn.

Scotland as a non-EU Member State

The most obvious route for
Scotland to consider would be membership of the European Economic Area (EEA),
along with Norway, Iceland and Liechtenstein. The EEA provides for participation
of these non-EU countries in the EU’s single market freedoms and all the EU legislation
related to them, as well as most EU employment and environmental law. But Scotland
would not be covered by EU laws in other areas, notably agriculture, fisheries,
tax and justice and home affairs – although, like Norway and Iceland, it could
sign separate treaties with the EU on these issues. Although the current EEA
countries have joined Schengen, this is a separate issue (agreed years after
the EEA), and Scotland would have no legal obligation to do the same.

There would be no obligation to
join the EU single currency, and most significantly Scotland would be free to
sign separate trade agreements with non-EU countries, because the EEA does not
cover the EU’s customs
union. This is particularly important because it means Scotland could seek
to retain a closer economic relationship with the rUK than the rUK might have
with the EU. Scotland could also “go global”, as Brexiteers say, by signing up
to the free
trade treaties already signed by members of the European Free Trade Area
(EFTA: the EEA states plus Switzerland) with non-EU countries. And it would
retain power to sign its own treaties on top (or to seek to retain its own
versions of the EU’s free trade deals with non-EU countries, as the rUK is
likely to do). Scotland would have to become a separate WTO member, but could
try to fast-track this by copying the rUK’s process of detaching from the EU’s
WTO membership.

Is there a downside to EEA
participation? Some have argued against the UK joining the EEA due to objections
to single market participation, the need to accept ECJ jurisdiction, continued
contributions, its undue size compared to other members, or its lack of
influence over EU laws which would apply to it. Are these arguments
transferable to Scotland? The first to third objections are not, since Scots
voted to remain in the EU, entailing the single market, ECJ jurisdiction and
budget contributions anyway. (In fact, the non-EU EEA countries are not subject
to the jurisdiction of the ECJ, but a separate body called the EFTA Court: it
usually follows ECJ case-law, but its decisions are not always binding. EEA
financial contributions do not go straight to the EU budget, and would
logically be recalculated in light of Scotland’s economic position anyway).

The fourth objection (size) is
unconvincing: Scotland is broadly comparable with Norway, in particular in terms
of population, location and economy. Finally, EEA states have a modest say on
EU laws, being consulted on draft EU legislation and having the option to
reject the application of new EU laws (although the EU might retaliate if they
do that). Anyway, this is certainly more say over EU laws than Scotland would
get after Brexit as part of the UK. In fact, it’s more say than Scotland gets
over EU laws while the UK is an EU Member
State – given the marginal influence that Scotland has over anything that the UK government does.

So the EEA option includes things
that Scotland seeks (single market participation) while steering clear of things
it may wish to avoid (the single currency and deficit criteria, Schengen, EU
trade policy with non-EU countries, and EU fisheries policy). It also has the advantage of being potentially
speedier: the EU can decide to apply treaties with non-EU countries provisionally,
pending national ratification.

What about the prospect of a ‘Spanish
veto’ over Spain joining the EEA? Here we have actual evidence to suggest that
it’s not very likely. For the EU has recently concluded an association
agreement with Kosovo
– despite Spain (and four other Member States) refusing
to recognise the independence of that country after its unilateral
declaration of independence. (Note: the EEA is also an association agreement,
and Member States have a veto over the initial conclusion of such treaties).

Failing EEA membership, Scotland
could still seek other forms of relations with the EU which may be closer than
the rUK might enjoy, possibly as a non-EEA member of EFTA like Switzerland. Unless
Scotland followed Turkey in joining the EU’s customs union, this would again leave
it free to simultaneously retain a strong economic relationship with the rUK.

Scottish independence and Brexit

Could the Brexit process be
relevant for the Scottish independence debate – by analogy, or a part of a
broader political dynamic? Certainly many of the arguments of Brexiteers – now taken
over by the whole Westminster government – could be easily adapted to the
Scottish debate. For instance, independence would allow Scots to ‘take back
control’ of far, far more of their laws and finances than leaving the EU will
do for the UK.

We can also make direct
comparisons with certain issues. Does Scotland have a veto on UK tax laws, like
the UK does in the EU? No. Does Scotland agree to over 90% of laws passed in
Westminster, like the UK does in the EU? No. Does Scotland have a veto on UK defence
policy, like the UK does in the EU? Hell, no.

The impact of Brexit on the UK economy
can be argued both ways. If Brexit seems to be benefiting the UK, then arguably
this shows Scottish independence is unnecessary; but equally it arguably shows
that it could also be painless. If Brexit seems to be hurting the UK, then
arguably this shows Scottish independence is needed to escape; but equally it
arguably shows that independence could be even more painful.

It’s certainly now ridiculous to
argue (as it was in 2014) that Scotland should stay in the UK if it wants to
stay in the EU. Leaving the UK won’t automatically mean joining the EU, as
discussed above; but staying in the
UK now certainly means leaving the EU.
While independence will likely be disruptive, Brexit will entail disruption
anyway, so it’s now arguable which is the ‘riskier’ and which the ‘more stable’
choice. The plummeting pound may no longer be quite so attractive a currency to
retain.

Adapting the words of Brexiteers,
the rUK would have an economic incentive to quickly reach new trading arrangements
with Scotland. And if they refuse to, as an attempt to punish Scots, then, again
in the Brexiteers’ own words, who would want to stay in a Union that treats you
like that?

Given the changes in the UK since
2014, there is a strong case that another independence referendum is justified.
How would Scots have voted then, if they knew that a “Yes” vote would lead to “hard
Brexit” in a few years’ time?

As things stand, the current UK
government has not suggested any new devolved powers for Scotland, and still
less any fundamental change to the UK’s constitutional structure. It has
promised to consult the Scottish government over Brexit, but not to provide for
differential links with the EU. It has prioritised a very low net migration
target over the country’s economic interests; it has refused to allow control
by the Westminster parliament (never mind Holyrood) over the form that Brexit
takes; it treats EU citizens in the UK as “bargaining chips”; and it aims to slash
foreign students, expel foreign doctors and (at one point) to name and shame employers of foreign
workers. It has made no attempt to reach out to the large minority of British voters
– and the large majority of Scots – who voted “Remain”. Quite the reverse: its media
allies refer to critics of Brexit as traitors who should be silenced and
imprisoned.

If there is another referendum,
Scots will have to decide if they would still be “better together” under these
circumstances.

12 comments:

I have a problem with the British Constitution as I do not see how the UK Parliament is sovereign given it is limited by the considered will of the people of Scotland under article 19 of the Treaty of Union and Scots Law does not recognise the purely English Law practice of the crown in parliament.

Surely article 19 has primacy in law over the non existent British Constitution as the UK Parliament has no legal or constitutional power to alter the conditions of article 19.

In which case the UK Parliament or its executive has no power to prevent a second referendum on the issue of independence as this reflects the considered will of the people of Scotland. Even without the requirements the UK Parliament has undertaken as a signatory to UN declarations, OECD and EU human rights legislation to allow self determination of a nation state which existed prior to any treaty or subversion which annulled it.

As you said in your article, I think the option of Scotland in UK and EEA throws up alot of complex issues. I've listed a few that few spring to mind.

I'm Scottish but live in Switzerland. I have the right to do that under the freedom of movement of people in the EU because Switzerland signed up to FoM through bi-lateral treaties. When the UK ends FoM my rights here are potentially under threat. Assuming Scotland can remain a member of the EEA and a signatory to FoM can I say to the Swiss authorities not to throw me out because I am Scottish? How will I prove that to them? Nationality is typically proven through an approved identity card or passport. Without independence I will still have my UK passport. Any ideas how that might work? For example, how would Scottishness be defined in an unambiguous way?

EEA rules allow pensions to follow the migration of citizens eg I could move my Swiss pension back to the UK if I decide to relocate there. My UK pension is actually with a provider based in England. I'm guessing that is no longer an option - I would need to transfer my pension to a Scotttish firm. The problem is that I can't do that without harmonisation of the English and Scottish pension systems. The UK pensions market would need to work in a way that was blind to the Scotland/England border but also be allowed to diverge due to their differing legal obligations. That sounds like a conundrum.

Yes, the free movement of persons for Scotland as distinct from the UK could only work if there were a means of distinguishing Scots from other UK citizens. (Independence for Scotland would raise the same issue). There could be some ways to start on this - the electoral roll for the Scottish parliament, for instance? But of course there are Scottish people like yourself who don't live in Scotland. Did the White Paper on independence address this issue?

I'm not at all sure if the White Paper on independence addressed this issue. I would imagine it at least made an attempt at it. I will need to look that up because this might have a direct impact on my future. Brexit is throwing up all sorts of challenging questions.

I'm still not exactly sure how it would work without independence. At a guess it would require all EEA states to recognise Scotland as a separate entity and be in agreement with rUK over the definition. Would that fly with the EEA? With rUK? I genuinely have no idea. It certainly diverges somewhat from the standard measure of nationality.

I think it's technically possible but too politically difficult. Let's see what the Scottish government suggests in its upcoming paper. I think the key question is whether May rejects everything outright - thinking that Sturgeon can't win a referendum with current polls - or offers very minor concessions, putting Sturgeon in an awkward position re the most fervent pro-independence activists.

Great article - have you considered writing about the 'treaty ports' proposal that May appears to have offered to Nissan as reassurance? If keeping individual factories inside the EEA is possible, surely Scotland could become one big special economic zone?

Regarding the Kosovo agreement, you say that five EU Member States did not recognise the territory, so I presume they did not vote in favour of the SAA when the Council met. Is there a record of that decision? Would that decision have been taken by QMV?

Since it is an association agreement then unanimous voting applies. It is possible that some Member States abstained, but none of them could have voted against it. The record of Council voting does not mention whether any Member States abstained, and there is no mention of any statement explaining the vote (usually Member States issue a statement if they abstain or vote against). If you look at the text of the agreement it specifically says that it does not mean that Member States have recognised Kosovo if they don't want to. Voting record here: http://data.consilium.europa.eu/doc/document/ST-6378-2016-INIT/en/pdf